Up to €3bn in institutional capital looking to invest in Irish ‘build to rent’ sector

There is between €2 billion and €3 billion in institutional capital looking at the "build to rent" sector in Ireland, according to Tim MacMahon, director of development and residential capital markets at CBRE in Ireland.

Mr MacMahon was speaking to The Irish Times on the back of the Alternative Investment in Ireland report produced by CBRE on Wednesday.

According to Mr MacMahon, the sector, which is big in the US and Germany, is "gathering pace very quickly". He said that Dublin is a particularly suitable market for the build-to-rent sector, but that the current problem in the market is the lack of stock.

The ideal scenario for institutional developers is to develop land where there is availability for about 250 units. However, because of the poor level of land availability, Mr MacMahon says that some major investors are settling for developments with fewer units. He cited Shelbourne Plaza as an example of this – a development with roughly 50 units.

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Despite the issues in the sector, he says that his company is advising developers who are considering this and that “the weight of money we’re seeing pile into this is massive”. One of the appeals of the sector is fact that the residential market has outperformed other sectors in recent years, he believes.

In the pipeline

According to Stephen Purcell, a town planning director at Future Analytics Consulting, Ireland can take cues from markets such as the UK, where there are over 70,000 build-to-rent units either constructed or in the pipeline.

CBRE’s report highlights that while a large portion of the Irish population will aspire to home ownership, saving for deposits will delay that process, therefore increasing the requirement for rental accommodation.

The report argues that the rationale for developing build-to-rent accommodation is “borne out by the fact that there has been an additional 174,000 households renting accommodation in the last ten year period”. CBRE’s alternative investment in Ireland outlook believes that there is potential for an additional 23,000 households entering the rental sector by 2021.

"Considering the seriousness of the imbalance between supply and demand in the Irish housing market, the Irish Government are now largely supportive of the delivery of large-scale purpose-built accommodation to service the rental sector, " Mr MacMahon added.

Strong opportunities

“These alternative investment sectors represent strong opportunities that can contribute to tackling the chronic undersupply of housing in the Irish market”, according to Mr Purcell.

CBRE also highlights purpose-built student accommodation (PBSA) and healthcare properties as alternative sectors with investment potential. The company suggests that yields in the PBSA sector “tend to be higher” and notes that, in Dublin’s case, only 13 per cent of the full time student population has access to purpose-built student accommodation.

With regard to healthcare, CBRE believes that the demand on the hospital system is going to increase in the coming years as the Irish population continues to age. The commercial property company expects 16 per cent of the Irish population to be classified as dependent on the healthcare system which, it says, “is encouraging investors to focus on the healthcare sector”.